Corporate leaders have urged the incoming Coalition government to back Archer Daniels Midland’s $3 billion takeover of GrainCorp, warning the deal is shaping up as a test of Australia’s openness to foreign investment.

The deal has become a focal point for growing fears in boardrooms that Australia’s reliance on foreign capital is being eroded by years of mixed messages under a Labor government and pressure from the National Party to reject the bid.

“The government is going to have to go out of its way to make sure the world knows that the policy is being run centrally and is not being run from the margin," prominent investment banker and former government adviser Mark Johnson said. “A pretty enlightened and open policy towards foreign investment is fundamental to that."

Qantas Airways chairman and former Rio Tinto chief executive Leigh Clifford said he hoped for a “more mature" debate about foreign investment under a Coalition government and criticised the xenophobia he said had crept into the debate around 457 visas and mining investment.

However, key lobby group NSW Farmers said its concern about the takeover was not related to foreign investment but reflected concerns that ADM could increase grain storage fees and make assets to ports more difficult.

“We don’t want to be seen as these xenophobic redneck farmers," NSW Farmers grain spokesman
Dan Cooper
said. “This is not about foreign ­investment. It is about how this transaction will benefit growers."

Pandering to populist sentiment

Mr Clifford said: “We have to recognise that Australia is in competition for foreign investment.

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“ Mining and LNG could not possibly occur without it. I was ashamed about the debate that went on directly after the announcement of the mining tax. I think some in the Labor government did themselves a dis­service."

Foreign investment became an election issue when prime minister
Kevin Rudd
was accused of pandering to populist sentiment by saying he was concerned about agricultural sales.

While Treasurer-elect
Joe Hockey
, who has the final say on the deal, is likely to have a free-market view of foreign investment, the next Deputy Prime Minister, Nationals leader
Warren Truss
, opposes the deal.

Other senior business leaders and bankers said Australia risked squandering its potential to double agricultural exports by 2025 if badly needed foreign investment in the sector was deterred.

Mr Johnson, a former
Macquarie Group
deputy chairman and a senior adviser at Gresham, said he supported the
GrainCorp
bid because scale and capital was vital for Australian agricultural companies to compete globally.

“Essentially it is dealing in commodities, and commodities increasingly around the world are dealt with by very competitive global firms and scale seems to be a very important characteristic," he said.

He called for a more transparent approach by the Foreign Investment Review Board, which will assess the GrainCorp bid and make a recommendation to the Treasurer. “I would like to see FIRB making some of its policies a little more explicit and keeping them updated. A little more transparency and a little more missionary work."

Bankers say part of the capital problem for Australian agricultural companies is a lack of willingness by domestic institutions to accept cyclical downturns and invest over the long-term.

“Quite a number of agricultural-facing companies have for significant periods of time traded at substantial discounts to underlying value and have ended up because of that going into foreign ownership," said investor
Gary Weiss
, whose
Guinness Peat Group
became a major shareholder in farming group
PrimeAG
before the company was privatised.

“It is not as though the opportunities to invest have not been there, but often that the local market values them materially lower than foreign participants," he said; he declined to comment directly on the GrainCorp deal.

Fears of higher fees

Grain growers said the debate about foreign investment had been twisted to make them appear xenophobic when the real issue was around fears ADM’s control over storage sites, rail lines and ports would lead to higher fees and lower prices.

Mr Clifford said emotions often clouded good judgment on foreign investment. “We need to make sure we don’t have a decision based on Mickey Mouse issues," he said. There was also evidence that foreign capital could breathe life back into farming property that would otherwise be worthless.

Business leaders have compared the debate over agriculture assets to fears about Japanese investment in Queensland property in the 1970s. Mr Johnson said that like the Japanese, Chinese investors would eventually become more savvy and learn how to deal with “Australian marginal sensibilities" ­better.

“As the Prime Minister [Tony Abbott] said, Australia is open for business, so they are going to have to present serious and sensible policies," Mr Johnson said.

An ANZ report this year forecast that by 2050 Australia will have to find $600 billion to improve farm productivity and another $400 billion for older farmers to sell to the next generation.

Economists says foreign direct investment accounts for about a quarter of all capital coming into the country since the dollar was floated in 1983.

Direct foreign investment into Australian companies rose 8.7 per cent to $550 billion in 2012, according to the Australian Bureau of Statistics. It has risen from $298 billion since 2005, representing a compound average growth rate of 9.2 per cent.

The United States, Britain and Japan represent about half of foreign stock investment in Australia, where as China only holds about 4 per cent of $24 billion, according to the Australian Bureau of Statistics.

Negotiations around a free-trade deal with China will also put the issue in the spotlight this year, with China pushing for the government to relax restrictions on investments by state-owned enterprises.